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2013 Innovation Awards: Catastrophe Risk Engineering Solutions for Supply Chain Risk

2013 Innovation Awards: Catastrophe Risk Engineering Solutions for Supply Chain Risk



The Japanese tsunami and Thai floods in 2011 underscored to insurers and risk managers how natural catastrophes can devastate supply chain networks.

According to Akshay Gupta, vice president and director of catastrophe risk engineering services at Boston-based catastrophe modeler AIR Worldwide Corp., “clients began asking a lot of questions” in the wake of those events about how better to deal with the supply chain risks.

The result was AIR's Catastrophe Risk Engineering Solutions for Supply Chain Risk, which was unveiled in April 2012 and is being recognized with a 2013 Business Insurance Innovation Award.

“It is an analytic process that will eventually lead to a product,” said Mr. Gupta. “Right now, we are working on it as a consultative process.”

The process helps risk managers better assess and reduce their risk from catastrophic perils. Mr. Gupta noted that while catastrophe risk to supply chains is complex, it can be quantified.

AIR combines site-specific catastrophe risk engineering with probabilistic hazard risk modeling. This allows AIR to provide catastrophe risk solutions to supply chain networks across the globe. “It leverages our access to our global catastrophe risk models,” said Mr. Gupta.

“It's not like we've come up with a new way to measure distance; it's taking something that's established and extending it in a unique way,” he said.

The existing method of assessing supply chain catastrophe risks is based on worst-case scenarios, “establishing 0% to 100% disruption one node at a time and propagating the impact through the entire supply chain,” said Mr. Gupta in AIR's announcement of the process last year. That method does not include a shutdown's likelihood or frequency, the partial shutdown of a single node or simultaneous disruption of multiple nodes, he said.

“The traditional approach can now be improved to provide a realistic and comprehensive assessment of the supply chain's catastrophe risk exposure.”

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